Keystone climate impacts could be higher than State Department estimate: study

An economic analysis of the proposed Keystone XL pipeline’s possible climate impacts has concluded they could be up to four times higher than previously estimated.

In the study published in the journal Nature Climate Change, researchers at the Stockholm Environment Institute write that widely quoted U.S. State Department findings that the oilsands pipeline wouldn’t make a significant difference missed a major source of greenhouse gas emissions.

“It didn’t appear that they looked at the market implications,” said co-author Peter Erickson. “If the Keystone pipeline were to enable a greater rate of extraction of the oilsands, would that not increase global fuel supplies, which might then decrease prices and therefore allow a little bit more global consumption?

“That’s the analysis that we did here and we found that it could be the greatest emissions impact of the pipeline.”

Erickson and co-author Michael Lazarus used figures from previous research and international agencies that mathematically describe how oil prices affect consumption. They found that a slightly lower price created by every barrel of increased oilsands production enabled by Keystone XL would increase global oil consumption by slightly more than half a barrel.

The capacity of the pipeline proposed by Calgary-based TransCanada Corp. (TSX:TRP) would be about 820,000 barrels a day. If every barrel of that came from new production, the annual carbon impact of Keystone XL could be up to 110 million tonnes — four times the maximum State Department estimate of up to 27 million tonnes.

The authors acknowledge their study doesn’t answer whether Keystone XL would encourage oilsands expansion or simply provide an outlet for growth that would have happened anyway.

Environmentalists maintain the former.

The Pembina Institute argues the pipeline would enable oilsands companies to get a better price at U.S. Gulf refineries, sending a market signal to increase production. The clean energy think-tank also points to statements by officials suggesting the project would allow their companies to mine more bitumen.

While other options to move oilsands crude exist, the institute says none would have Keystone’s size and none would be as advanced.

“It is likely that Keystone XL would, in fact, drive increased oilsands production in Alberta,” says an institute paper.

Industry officials say the relationship between pipelines and production isn’t that simple. Higher output and better transportation feed back into each other, said Terry Abel, director of oilsands for the Canadian Association of Petroleum Producers.

“Oilsands growth will at some point require additional capacity to transport the product,” he said. “That growth in production generates numerous proposals to do just that.

“Ultimately, it’s the demand for the product that encourages production growth.”

Still, Lazarus said the debate about the climate impacts of energy projects would benefit from a closer look at their market effects.

“Looking at the demand-supply interaction is something energy economists do and modellers do all the time, but usually at a global level. What is not done sufficiently is to look at the implications of individual actions, policies, programs and investments.”

The Canadian government argues the study bases its conclusions on false assumptions.

The first assumption, an email from Natural Resources Canada stated, is that Canadian oil production would be affected by stopping one pipeline. The second is that crude delivered by Keystone XL would replace sour crude from the Middle East, and that it would be 18 per cent more greenhouse gas intensive than the Middle Eastern crude.

“The Government of Canada has been clear that it agrees with U.S. State Department analysis that Keystone XL will be safer and less emitting than alternative options,” the email said.

Lazarus said even though the pipeline’s capacity would represent only about one per cent of global oil consumption, that would still be enough to incrementally move markets. The global energy market is so big that even one per cent is a significant chunk, he said.

“It’s important to look at the incremental impact of all sorts of actions No particular action is going to be individually that large.”

“The paper suggests a flaw in the analysis of the U.S. State Department, because it did not consider this effect when addressing President Obama’s request to know the incremental effect of the pipeline on emissions.”

The Stockholm Environment Institute is a non-profit, international research group based in Sweden with seven offices on four continents. Its work is supported by the Swedish and other governments, the private sector and charitable foundations.

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